Aim tax at right target

Published: July 31, 2012 12:00AM

Taxes are going up, and it’s not because happy days are here again. On the contrary, the economy in general and the local economy in particular are still having a rough ride. People continue losing homes to foreclosure, property values are down and the state government work force faces another two years without even a cost-of-living pay adjustment.

In a concession to these realities, local government has made some tax-relief gestures in the five years since the bottom fell out, but now it apparently has decided that, hard times or not, it has to bring in more money to keep doing the things it wants to do.

For Fiscal Court, this means the property tax bills that go out this fall will be higher. The new rate approved at Friday’s meeting raises the bill on a $100,000 home from $157 to $165. School taxes, the biggest component of local tax bills, are still to be decided.

Treasurer Susan Laurenson told State Journal reporter Lauren Hallow county government can’t afford to keep lowering property tax rates, as it has since 2009. Each time the rate falls, it reduces the base from which an allowable increase is calculated and makes it harder to regain the loss because local governments in Kentucky are limited to no more than a 4 percent increase in property tax revenue each year, excluding that on new or reassessed property.

And so, the magistrates decided they’d take the “compensating” rate. This is designed to bring in the same amount of income as last year but in reality will produce $170,000 more because there have been some property value increases even though the overall trend is downward. Some new property has been added to the tax rolls and some older property has been resold and therefore reassessed.

The housing bust, ironically, contributes to the tax increase. When property values fall, it requires a higher rate for revenue just to break even from year to year.

Magistrate Larry Perkins, the lone dissenter in Friday’s decision, said he recognizes the need to increase income to keep the wheels of county government turning, but he’d rather stimulate employment. Then, even if property values flounder, the county would draw more from the tax paid by everyone working or doing business in Fiscal Court’s territory. The tax is collected on paychecks and net profits.

Perkins is right that the occupational levy is a fairer and more rational way of raising money the government needs to operate. In the county’s case, it’s 1 percent of pay or profit. It isn’t “progressive” in the same sense as state and federal income taxes, which take higher percentages from higher incomes, but at least it does require people who make more money to pay more taxes. That’s not necessarily true with property taxes, which often fall inordinately on less-than-affluent older taxpayers.

The City Commission, in its budget deliberations a couple of months ago, opted to give property owners a modest reduction in their rates while raising the 1.75 percent occupational tax rate to 1.95 percent. Mayor Gippy Graham and Commissioner Bill May opposed this maneuver but some city taxpayers likely agree commuters who work in Frankfort and live elsewhere should share the load.

City and county leaders ought to make cost-cutting a top priority in these difficult times. If this strategy falls short of what’s required, they should focus on taxation of income rather than property to fill the gap.